MONEY
To the theory of money Aristotle makes a substantial contribution. He agrees with Plato that money found its origin in the growth of necessary exchange, which in turn resulted from an increased division of labor. Unlike Plato, however, he gives a detailed history of the development of money.[[674]] Before its invention, all exchange was by barter.[[675]] But with the growth of commerce, barter became difficult, and a common medium of exchange was agreed upon.[[676]] Something was chosen that was a commodity, having intrinsic value (ὁτῶν χρησίμων αὐτὸ ὄν) and that was easy to handle (εὐμεταχείριστον) in the business of life such as iron, silver, or other metal.[[677]] It was first uncoined, defined merely by size and weight.[[678]] Finally, to avoid the inconvenience, it was given a stamp (χαρακτήρ) representative of the quantity (σημεῖον τοῦ πόσου).[[679]] Thus arose the use of money as a convenience in necessary exchange, but once having arisen, it became the foundation of false finance and retail trade, which are pursued as a science of gain.[[680]] All this accords well with the facts as now accepted, yet how utterly different is Aristotle’s standpoint from that of the modern historian of economic institutions is revealed by his last statement, and indeed by the setting of the entire passage. His history of money is merely incidental to his purpose of showing that money is the parent and the very life of the false finance which he decries.
He is also more explicit than the other Greek theorists on the function of money. He clearly recognizes the two functions noted by Plato,[[681]] but he deals with them in a much more detailed manner. His discussion grows out of his theory of distributive justice presented in the Ethics.[[682]] Money was introduced as the exchangeable representative of demand (ὑπάλλαγμα τῆς χρείας),[[683]] since diverse products must be reduced to some common denominator.[[684]] It is thus a medium of exchange, acting as a measure of all inferior and superior values, by making them all commensurable (συμβλητά).[[685]]
The other important function of money recognized is as a guaranty (ἐγγυητής) of future exchange. It represents the abiding, rather than the temporary, need, and is thus a standard of deferred payments.[[686]] The importance of money in the fulfilment of these functions is great, in the opinion of Aristotle. The possibility of fair exchange, or indeed the very existence of organized society depends upon it.[[687]]
He is also clearer than Plato and Xenophon in his definition of the relation between money and wealth. He severely criticizes the current mercantilistic theory of his day, which identified wealth with a quantity of current coin (νομίσματος πλῆθος).[[688]] He immediately follows this, however, with a more extended presentation of the opposite error of the Cynics, that money is mere trash (λῆρος), depending for its value entirely upon convention (νόμῳ). This theory, he points out, is based on the fact that, if money ceased to be recognized as legal tender, it would be useless; that it satisfies no direct necessity; and that one might starve like Midas, though possessed of it in superabundance.[[689]]
Aristotle is here somewhat ambiguous as to his own attitude toward this doctrine. He fails to object that money does not necessarily become valueless when it ceases to be legal tender, and that a similar argument might be used to prove that clothing is not wealth. Instead, he uses the idea as a means of refuting the opposite error, which is more obnoxious to him, and on the basis of it he plunges into his discussion of the true and false finance.[[690]] This, together with a passage in the Ethics, might point to the conclusion that he agreed with the doctrine of the Cynics on money. He states that it was introduced by agreement (κατὰ συνθήκην); that, owing to this, it is called νόμισμα, because its value is not natural but legal; and that it may, at any time, be changed or made useless.[[691]] In the light of other evidence, however, it seems probable that he here meant to emphasize merely the fact that the general agreement of a community is necessary before anything can be used as a symbol of demand. In stating that it may be made useless, he probably referred to money itself, rather than the material of it, which is, of course, true. His determined opposition to the mercantile theory of money, as the basis of false finance, caused him to appear to subscribe to the opposite error. That, in actual fact, he did recognize the necessity of intrinsic value as an attribute of money is clearly evidenced by another passage, where he specifies it. He says that the material chosen as money was a commodity and easy to handle.[[692]] This can mean only that it is subject to demand and supply, like any other object of exchange. This inference is substantiated by another passage, which declares that the value of money fluctuates, like that of other things, only not in the same degree.[[693]] Moreover, in his enumeration of the diverse kinds of wealth, money is regularly included.[[694]] It seems evident, therefore, that he did not fall a victim of either error, but recognized that, though money is only representative wealth, yet it is itself a commodity, whose value changes with supply and demand, like other goods.[[695]] Since he understood the use of money as a standard of deferred payments, he also saw clearly the necessity of a stable monetary standard.[[696]]
Though Aristotle defines money as representative wealth, like Plato, he fails to apprehend its meaning as representative, and therefore productive capital.[[697]] In his eyes, such a use of money is unjust and contrary to nature. He counts usury (τοκισμός) to be a large part of that false finance, which turns money from its true function to be made an object of traffic.[[698]] Those who lend small sums at a high rate of interest are contemptible,[[699]] and petty usury (ἡ ὀβολοστατική) is the most unnatural and violent form of chrematistik, since it makes money reproduce money.[[700]] It is to be observed, however, that his criticism is directed chiefly against petty interest, and that he does not appear to be thinking of “heavy loans on the security of a whole cargo, but of petty lendings to the necessitous poor, at heavy interest.”[[701]] Though his entire account of false finance exhibits an animus against the precious metals, as its basal cause, and as the source of individual and national degeneration,[[702]] yet he clearly appreciates their necessary function in the state, and his hostility is actually directed against the spirit of commercialism. Money, the means, has usurped the place of the end, until domestic and public economy alike have come to mean only the vulgar art of acquisition.[[703]]
The usual explanation of the fact that the Greek theorists failed to grasp the fact of the productive power of money is that loans were almost entirely for consumption, and hence seemed like an oppression of the poor.[[704]] This explanation, however, does not accord with the facts of Athenian life, at least for Aristotle’s day. It is clear from the Private Orations of Demosthenes that there did exist an extensive banking and credit system for productive purposes in the Athens of his time.[[705]] Moreover, the hostility to interest and credit was not the rule, but the exception, for Demosthenes and not the philosophers should be accepted as voicing public opinion on this point. He considered credit to be of as much importance as money itself in the business world,[[706]] and declared one who ignored this elementary fact to be a mere know-nothing.[[707]] Indeed, the money-lenders were, to him, the very foundation of the prosperity of the state.[[708]] The prejudice of Plato and Aristotle represent merely the exceptional attitude of the pure moralist, who because of the questionable tactics of money-lenders, and the injustice and greed in some phases of contemporary business life, became critics of all money-making operations.[[709]]